Family businesses

01 January 2010 Dr Ariel Sergio Goekmen, Michael O’Sullivan

Family businesses

The findings of a study into Indian Family businesses.

Relatively little is known about Indian and Asian family business comparative to the amount of research carried out in the field. When studying the development of the family business sector, the collapse of the Mughal Empire is widely seen as its origin. The different business groups can be broken down as shown in the table below.

The first investments of family businesses focused on commodities and textiles to grow into large diversified conglomerates, some of which are still in existence today. The influence of the government was felt especially in the attempt to develop a mixed economy from independence to the early nineties, marked by the License Raj. Under Rajiv Gandhi liberalisation took place and new and important sectors, such as information technology, began their growth phase, attracting substantial foreign direct and institutional investments until today.

Attitude of Indian family businesses towards flotation

The study selected the period 2002-2009. Out of a total of 240 IPOs, the majority of around 75 per cent were family businesses. Most of the IPOs took place in the infrastructure sector, but only 20 per cent of these were family businesses. Average dilution in stake was about 25-30 per cent. This figure contrasts with European family businesses, which seem to be more conservative in relinquishing their share to the public. Contrary to Europe, in India we believe the reasons relate to the wish to finance expansion and to take advantage of bullish market sentiments to monetise otherwise illiquid holdings.

Attitude of Indian family businesses towards private equity (PE)

Despite a generally increasing trend, PE in India is still a nascent market, which can be seen in the size of the transactions and the deal volume. There is scepticism amongst entrepreneurs about whether PE partners can justify the value creation at the cost of dilution of control and financial interest. The study observes that despite the hesitation of Indian family businesses towards PE, first generation entrepreneurs were more open to it. If they choose the route of PE, they also prefer to partner with PE investors, due to their deeper understanding of projects and constructive role in realising intrinsic value.

Influence of founding families on businesses

The study found that the survival rate of 56 per cent of the companies out of a sample of 105 since Indian independence is similar to the US. However, Indian businesses remain more often in the same ownership than in the US. Out of India’s biggest 200 firms, 16 per cent are more than 75 years old and about 80 per cent are in the same ownership, in the US it is 65 per cent. Since 80 per cent of the largest Indian firms are family businesses, these have shown significant growth compared to the West. The study selected a few family businesses as cases to highlight the prevalence of the founder members’ influence on business and promoter’s stake.

Indian family businesses’ growth strategies

In the observed period from 2000-2009, most family businesses in India have focussed on inorganic growth through merger and acquisition activities in overseas markets. Reasons for this step have mainly been to access new markets, acquire foreign strategic assets and to establish trade-supporting infrastructure, whilst improving revenues and profitability. Those companies which have chosen to focus on organic growth have consolidated where they enjoy competitive advantage and leveraged on the large domestic market.


In conclusion, large Indian family groups were more successful than a one-family setup. A reason for this can be attributed to these groups’ ability to influence institutional factors (capital, labour and regulation) in their favour better than smaller, individual firms can.

The change of ownership is much less in Indian family businesses when compared to their US or European counterparts. The generational transgression is managed more effectively within the family than in the Western world. Irrespective of family feuds, succession usually takes place within the same family and thereby supports the creation of family wealth. Therefore, dilution of family stake holdings to outsiders of the family takes place less than in Europe. This is evident by the minor role of private equity investments in India, as control is generally not ceded to outside successors, despite possible financial constraints in the owning family. Between 2000-2008, Indian family firms have invested about USD72 billion in mergers and acquisitions, which puts them ahead of others in the Brazil, Russia, India, China (BRIC) region.


Dr Ariel Sergio Goekmen, Michael O’Sullivan

CPD Reflective Learning